On the face of it these various schemes have little in common:
- The Youth Employment Scheme (YES) was introduced to encourage youth employment by allowing companies to sponsor employment in other entities and in return gain a new level for BBEEE;
- Employment Tax Incentive (ETI) was introduced originally as a short-term measure to encourage youth employment by offering a rebate to employers. It was then extended. Some employers have entered schemes with third parties to engage employers and claim this incentive. It is these types of schemes which we consider in this article;
- The labour broking industry is well established in South Africa. Labour brokers engage employees to provide labour to a third party. The labour broker acts as employer and maintains compliance (pays all taxes). Recent legislation changes deem the relationship with the end client to be one of employment after three months;
In all three of the above schemes, the company has entered a relationship with a third party. In all three there is an element of employment.
In normal circumstances the relationship works well. However, with recent events the third party is under pressure and it is in these circumstances that cracks appear in the relationship. We have already seen examples of this:
- We have seen an example where the third party usually providing the funding for the YES initiative is unable to do so this month placing the obligation on the employer to fund and potentially meet any subsequent obligations for severance and notice pay. The contract between the two parties does cater for this, but leaves the employer in the position of having to make a claim against the funder (who may not have adequate funds to meet this claim);
- In a recent example an employer had entered an ETI scheme and had been successfully claiming ETI for employees without covering their full cost. The claims had created an employment relationship and opens the employer up to meeting the full obligations and cost of each employee particularly where the third party is unable to meet its commitments;
- Labour broking employees won’t be paid during the lockdown and labour brokers are likely to find themselves under liquidity pressure. Assuming the labour broker is unable to meet their obligations it is further likely employees will try bring a claim against the end client. The end client will be unable to recover any losses from the labour broker;
We would urge employers to look at all their third-party arrangements to try and manage any risk from the third party entering financial difficulty.